Compversation #26 - Are You Suffering from Pay Amnesia?

Is the EU Pay Transparency Directive just another regular report to file?

That’s what we like to tell ourselves to stay calm as the deadline approaches (June 2026 is fast coming up!). But since this reporting obligation only initially applies to companies with more than 150 employees, many leaders of smaller organisations think they can relax.

In this issue, I’m determined to break that illusion (sorry about that). Because what’s coming is truly a paradigm shift, both legislatively and socially.

The biggest consequence of this change will be the new right to information granted to all employees, including those in smaller organisations.

Anyone will be entitled to ask where their pay stands in relation to that of their colleagues, and it will be up to the company to justify any differences that come to light.

We can already see what’s coming from some of the first legislative drafts in the EU. In the Netherlands and Finland, for example, lawmakers aren’t planning to set a minimum group size for enforcing this right to information. 

That means if only two people hold the same position and one of them exercises their right, they will effectively learn their colleague’s pay. 

Was that an oversight? Not at all. Lawmakers in those countries decided that an individual’s right to information outweighs a colleague’s right to confidentiality.

Even if such an approach is unlikely in other countries (I’d personally bet on most using a minimum of 5 or 10 people per job category), the impact of this new right will still be significant.

The questions employees start asking could cause real aftershocks. Some of my clients have already experienced this during audits we’ve conducted together. 

We ran simulations to prepare them for transparency by asking simple but revealing questions:

• “What would you say to this particular employee (carefully chosen by us) if they came to you tomorrow asking to justify their pay? 
• How could you explain the gap?”

It was a real wake-up call. Sometimes the only honest answers were:

• “No idea.”
• “That was decided by the manager at the time, but they’re no longer here.”
• “That decision was made before I arrived…”

Often, there was simply no documentation — nothing in the company’s HR or recruitment systems to justify sometimes substantial differences in pay. I get it. In any organisation, you inherit historical decisions whose origins aren’t always clear. But I doubt underpaid employees will see it that way.

The revenge of the underpaid 

Many companies have underpaid employees among their ranks. At the time of hiring, recruiters thought they’d struck a great deal.

A negotiation that went especially well, a candidate with overly modest expectations, or someone who simply didn’t know their market value, and there you have it: they accept an offer well below the range that was available. Of course, the recruiter isn’t going to argue, why would they? 

But those of us in compensation and benefits know these are ticking time bombs. (Leaving aside the ethical question: why should someone be paid less just because they’re not as skilled at negotiating?) 

It’s a safe bet that these time bombs will start going off, one after another, in the months and years ahead. 

So, how can we prepare? I’ve already dedicated a previous issue of this newsletter to the case of underpaid employees and the various ways to close pay gaps.

But even when you start correcting things through small, cautious raises, the reaction from the employee who’s been underpaid can hit hard:

“Okay, you’re increasing my salary now, but what about all those years I was underpaid?”

It may seem unthinkable to make up for that retrospectively, but that’s exactly the kind of decision a labour court could hand down in the event of a dispute, especially if the company can’t properly justify the gap.

“You asked for too low a salary during your interviews” isn’t a valid explanation, not for employees, and not for the courts either.

The importance of documentation 

Of course, sometimes there are perfectly valid reasons for someone to be paid less.

Maybe they lacked certain skills at the time of hiring and needed to develop them on the job. Perhaps they only had junior level experience, or raises were withheld because of performance issues.

In short, sometimes pay differences between colleagues in the same or equivalent roles can be entirely legitimate. But … you still have to be able to prove it. And that’s where most companies fall short, because they rarely keep a record of the reasoning behind their salary decisions.

Most HRIS systems only capture numbers, like job offers, raise percentages, compensation changes. But not the “why” behind them.

Few HR systems are designed to preserve the context, such as hiring criteria, performance reviews that justified a raise (or, conversely, a salary freeze), and the decision-making discussions that shaped those outcomes.

The result? Even when a decision makes perfect sense at the time, it becomes impossible to justify later.

Companies end up relying on managers’ memories, which, like any human memory, are unreliable at best and disappear altogether once someone leaves.

That’s how HR amnesia sets in: new teams inherit a long list of historical pay decisions they can’t explain, but they hesitate to challenge them, thinking “there must have been a good reason…”

So, you can see why there’s a clear need for a clean, well-maintained documentation system you can rely on when questions inevitably arise.

Rethinking your decision-making 

Companies will soon have to document everything, and I believe that will be one of the key consequences of the transparency revolution.

But let’s be clear: a bad decision, even perfectly documented, is still a bad decision.

From now on, every pay decision should be assessed for its short-term impact as much as its long-term defensibility.

How will this decision hold up in a year? In five? Could it put the company at risk somewhere down the line?

The truth is, most of these decisions are made in a hurry, often out of necessity, and with a purely practical mindset.

We ask ourselves: “How can I hire or keep this person, given their salary expectations and the budget I have?”

But we rarely take the time to zoom out, to ask how this offer compares to what others in similar roles are earning, or how it fits into the company’s overall pay structure.

That’s especially true when the pressure is on, when you urgently need to secure a new skill set or keep a key talent from leaving in the middle of a major project.

The prevailing manager mindset often goes something like this: “As long as I stay within the salary band, I can do what I want.”

That will no longer fly. Compensation decisions can’t be made separately anymore; they’ll need to be considered in a broader, consistent context.

Now, HR needs to play a greater role in all pay-related decisions, both for hiring and raises. At the very least, they’ll need to equip and empower managers to make fair, well-documented choices.

But, like everything else in business, the makeup of an HR team changes, which is why companies must invest in reliable, lasting systems that clearly store and organise contextual information, in a way that’s accessible and understandable to anyone — even when team members move on.

Ultimately, a company’s history depends entirely on the data it keeps. That’s exactly why, at Figures, we’re focused on giving our clients the tools to organise, store, and track their compensation data effectively.

It’s a topic I’m genuinely passionate about. So, I’d love to know, how do you handle these challenges in your organisation?